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On the Judgment Proof Problem

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  • Richard MacMinn

    (College of Business, Illinois State University, Normal, IL 61790, USA, e-mail: macminn@exchange.cob.ilsta.edu)

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    Abstract

    A party who causes harm to others and is found legally liable but cannot fully pay is said to be judgment proof. When the party who causes the harm is judgment proof, the incentives provided by the negligence and strict liability rules diverge. The payment probabilities implied by the two rules also differ. If the cost of care is non-monetary, as in Shavell's analysis, then the different probabilities generated by the two rules and the injurer's risk aversion combine to show that greater care is optimal under the negligence rule than the strict liability rule. If, however, the cost of care is monetary then the difference in probabilities generated by the two rules suffices to show greater care under the strict liability rule than under the negligence rule. The latter case holds for either a risk averse injurer or a corporate injurer. The Geneva Papers on Risk and Insurance Theory (2002) 27, 143–152. doi:10.1023/A:1021900910310

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Theory.

    Volume (Year): 27 (2002)
    Issue (Month): 2 (December)
    Pages: 143-152

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    Handle: RePEc:pal:genrir:v:27:y:2002:i:2:p:143-152

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    Cited by:
    1. van 't Veld, Klaas & Hutchinson, Emma, 2009. "Excessive spending by firms to avoid accidents: Is it a concern in practice?," International Review of Law and Economics, Elsevier, vol. 29(4), pages 324-335, December.
    2. Dari-Mattiacci, Giuseppe & De Geest, Gerrit, 2006. "When will judgment proof injurers take too much precaution?," International Review of Law and Economics, Elsevier, vol. 26(3), pages 336-354, September.
    3. G.G.A. de Geest & G. Dari Mattiacci, 2005. "Soft Regulators, though judges," Working Papers 05-06, Utrecht School of Economics.

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